RET Inc. currently has two products, low and high priced stoves. RET Inc. has

decided to sell a new line of medium$-$priced stoves. Sales revenues for the new line

of stoves are estimated at $$2,000$ a year. Variable costs are $80\%$ of sales. The project

is expected to last $10$ years. Also, non$-$variable costs are $$300$ per year. The

company has spent $$200$ in research and a marketing study that determined the

company will have synergy gains$/$sales of $$300$ a year from sales of its existing high$-$

priced stoves. The production variable cost of these sales is $$200$ a year.

The plant and equipment required for producing the new line of stoves costs $$1,500$

and will be depreciated down to zero over $30$ years using straight$-$line depreciation.

It is expected that the plant and equipment can be sold $($salvage value$)$ for $$800$ at

the end of $10$ years. The new stoves will also require today an increase in net

working capital of $$100$ that will be returned at the end of the project.

The tax rate is $20$ percent and the cost of capital is $10\%.$

What is the initial outlay $(IO)$ for this project?

A

What is the annual Earnings before Interests, and

Taxes $($EBIT$)$ for this project?

A $3.$ What is the annual net operating profits after taxes

$($NOPAT$)$ for this project?

A $4.$ What is the annual incremental net cash flow

$($operating cash flow: OCF$)$ for this project?

A $5.$ What is the remaining book value for the plant at

equipment at the end of the project?

A $6.$ What is the cash flow due to tax on salvage value for

this project? Enter a negative # if it is a tax gain. For example, if your answer is a tax

on capital gains of $$3,004\mathrm{.}80$ then enter $-3,005$; if your answer is a tax shelter from

a capital loss of $$1,000\mathrm{.}20$ then enter $1,000$

A $7.$ What is the project's cash flow for year $10$ for this

project?

A

Is the Net Present Value $($NPV$)$ for this project

positive or negative? Just write the word positive or negative

A